Homework

William, Daniel, and Thomas are brothers who have decided to form an engineering firm. Although Thomas has an MBA degree and will function primarily as the firm's financial expert, he has no formal tax knowledge. William and Daniel are bringing clients from their former firm, but Thomas anticipates that the new firm's client base will not be large enough to avoid a tax loss for 3 years. After year 3, the firm's profits should increase rapidly. By year 6, he anticipates that the firm will generate a substantial profit and employ 25 people. Because Thomas is unsure whether the firm should operate as an S corporation, partnership, or corporation, he has hired your accounting firm to guide him. Thomas is particularly concerned with how the form of organization would affect the

Pension plan the firm will adopt

Firm's ability to compensate current owners and employees and attract new owners or employees

Total tax liability of the owners

Firm's ability to distribute cash and/or property

Write a letter to Thomas explaining how the organizational form of the business affects each of the items he has mentioned.